Oil prices may go down in 2008

Many energy experts are predicting that the price of oil will fall in 2008 from its current level of about $93 a barrel.

Behind the predictions: a slowing US economy and stronger production from both OPEC and non-OPEC sources. In addition, tensions with Iran seem to have eased somewhat, and the supply of oil from northern Iraq appears to be better. Increased production of ethanol and biodiesel will also help.

"Next year, we will probably be in a range of $80 to $85 a barrel," says Rick Mueller, an analyst with Energy Security Analysis of Wakefield, Mass. "And if the US goes into a recession, the price forecast will be lower."

If the price does stay in the $80 to $85 range, it will still be higher than the average price for 2007, which was closer to $71 a barrel.

The prospect of oil remaining under $100 a barrel could help the economy, says Bob Gay, managing partner of Fenwick Advisers, based in Rye, N.Y. "It takes a little pressure off the consumer," he says. "Beyond $100 a barrel is a delicate spot."

Indeed, lower oil prices could help ease cost pressures, since most measures of inflation have been pumped up recently by the rising price of food and energy. The increases have troubled the Federal Reserve, which is trying to balance the need for the economy to grow with the need to keep inflation in check.

Although there is optimism that oil prices will fall, energy analysts caution that a colder-than-normal winter could change the dynamics. "The most recent forecast is for the weather to be cooler into early January but later in the month to be warmer than normal," says Mr. Mueller.

Higher energy costs are eating into consumers' pocketbooks. The Energy Information Administration (EIA) estimates that the average household's winter heating bills will be about $2,000 – some $500 higher than last winter. Also, consumers this year paid an average of $2.83 per gallon for gasoline, according to EIA.